AOL "Disintegrating"; Also, Why Curt Viebranz Was Fired*

*UPDATE: AOL spokesperson Tricia Primrose strongly denies several assertions in this post. Specifically, she argues that AOL's business is strong and that Curt Viebranz's dismissal had nothing to do with his reluctance to embrace certain revenue targets. Trish's full response follows the post.

We spoke to several sources close to AOL (TWX) yesterday to get some color on why the president of Platform A, Curt Viebranz, was suddenly sacked after only five months on the job. We also got an update on the state of the company, the AOL-Yahoo (YHOO) talks, and Jeff Bewkes's current thinking.

The Sacking of Curt Viebranz

We have been told that Curt was fired by AOL's COO, Ron Grant, because Ron wanted Curt to commit to revenue growth that Curt did not believe was possible given the rapid deterioration of AOL's owned-and-operated properties. We have been told that Curt told Ron he could not deliver Ron's numbers, and Ron sacked him.

We have also been told that the initial Platform A concept was poorly defined and that Curt was essentially destined to fail. Lastly--in contrast to the assertion above--we have been told that Curt was not fired because of revenue targets but
because Ron had lost faith in his ability to rapidly and smoothly
integrate multiple companies into Platform A (Translation: In Ron's eyes, Curt was incompetent).

Our understanding is that Curt is and was well-respected within Time Warner and is considered a strong executive. One source believes the numbers Ron wants to achieve are very aggressive--accounting neither for the deteriorating economy nor the decline in value of AOL's general portal advertising inventory. The source says revenue at AOL's owned-and-operated properties (a.k.a., the portal) is falling off a cliff, and that the relatively small revenue at Platform A cannot offset this.

Update on The "Turnaround"

One source suggests that, by hiring and then firing Curt as the president of Platform A, AOL has just wasted another 6 months in its "turnaround." Lynda Clarizio, the new head of Platform A, is well-liked, but she was passed over for the Platform A job in favor of Curt only 6 months ago. Lynda has close ties to Ron Grant from back in the AOL business development days. A source suggests, however, that, as recently as 6 months ago, Lynda herself was in danger of getting whacked for perceived insubordination.

On a more macro level, our sources continue to have little confidence in the leadership of Randy Falco and Ron Grant. Randy is considered to be a straight-shooter but one who still knows little about the Internet. Ron, AOL's COO, is thought to be smart but lacking in people skills and management experience. When describing Ron and Randy's leadership, our sources repeatedly used words like "inept," "clueless," and "amateur hour." Prior to being installed as AOL's COO, one source complained, Ron had "never run so much as a hot dog stand."

Given that we have heard similar sentiments for more than six months, we inquired as to why Time Warner CEO Jeff Bewkes doesn't do some sacking of his own. Our sources believe that Ron was Jeff's "hatchet guy" during Jeff's early days as Time Warner COO and that Jeff feels he owes Ron a debt of gratitude. Installing Ron and Randy as AOL's new leadership team was also reportedly one of Jeff's first moves as COO, and he apparently feels he has to stick by that decision.

We should also add that we believe Ron and Randy are in a very challenging position (as is Jeff, for that matter). It's not clear what, if anything, can be done to save what's left of AOL, and many of Ron and Randy's challenges have been inherited.

AOL-Yahoo Negotiations

Two sources say the AOL-Yahoo negotiations are continuing, but mostly at the Time Warner level (which suggests to us that they aren't yet that advanced). We continue to believe that an AOL-Yahoo combination would make sense, but we don't see how the deal could possibly be more attractive to Yahoo shareholders than the Microsoft (MSFT) bid. Thus, although the negotiations may eventually produce a formal deal proposal, we don't expect it will be seriously considered by Yahoo's shareholders.

Jeff Bewkes's Current Thinking

A source suggests that Jeff Bewkes is currently planning to give the AOL "turnaround" until mid-year to work. If it doesn't, the source suggests, he will then sell it or spin it off.

Bottom Line

AOL, according to one high-level source close to the company, is "disintegrating." We have heard or seen nothing in the past six months that makes us disagree with this assessment.

*UPDATE: As described above, AOL strongly disagrees with some of what our sources have told us. AOL spokesperson Tricia Primrose provides the following statement:

“It is absolutely untrue that Curt Viebranz was dismissed because he declined to hit revenue targets. The move to put Lynda Clarizio at the helm of Platform-A was tied to accelerating the consolidation and integration plan for our industry-leading advertising business. Moreover, to suggest that AOL’s business is disintegrating is also absolutely untrue. AOL has made tremendous progress in turning around the company while simultaneously transitioning from a subscription-based business to an advertising supported Web business. We’ve had five consecutive months of page view growth for our programming areas and Platform-A continues to be the #1 ad network with 167 million UVs and a domestic reach of 90%.

NOTE: In the original version of this post, Henry mispelled Lynda Clarizio's last name.